The government created another perverse incentive by allowing clinics to bill Medicare separately for certain medications, reimbursing them at a markup over what they paid drug makers. Dialysis companies embraced the opportunity: doses of Epogen, prescribed to treat anemia, and similar medications tripled between 1989 and 2005, becoming Medicare’s single largest pharmaceutical expense. “Their core business became giving patients injectable drugs,” said Richard A. Hirth, a professor of health management and policy at the University of Michigan School of Public Health. “Dialysis was just the loss leader that got [patients] in the door.”
Though lucrative for clinics, the drug boom—much like the service cuts—may have undermined patient care. A 2006 study showed that patients treated with higher doses of Procrit, a medication similar to Epogen, were at greater risk for heart problems and death than those who got lower doses.
As a whole, the government’s payment rules have given big providers, with their economies of scale and purchasing power, a financial edge over smaller ones, spurring consolidation. DaVita and Fresenius each now have at least 1,500 clinics and more than 120,000 patients in the United States.
The chains say their deep pockets support quality initiatives that smaller providers can’t match. “One of the advantages of being large … is that you can invest in trying new things and being innovative,” said Dr. Allen Nissenson, DaVita’s chief medical officer. The Big Two are evolving into one-stop-shopping outlets for dialysis-related services: they run labs, pharmacies, and clinics that specialize in vascular access. They have moved into the home-dialysis market and make and sell drugs used by dialysis patients. In 2009, the dialysis giants booked combined North American operating profits of $2.2 billion, their most ever. DaVita said its margins are slimmer than those of the health-care sector overall.
Some smaller operators, meanwhile, are struggling. For the past several years, the Independent Dialysis Foundation, a nonprofit with nine clinics in Maryland, has run in the red. The founder, Dr. John Sadler, a pioneer in dialysis, said he has refused offers to sell, because he believes independent operators offer a crucial alternative to chains. But Sadler admitted to a growing sense of futility. “Perhaps people like me are dinosaurs,” he said. “I’ve always thought our focus on patients, not profits, was important.”
Many within the dialysis world share Sadler’s uneasiness with the dominance of for-profit providers overall and chains in particular. Over the past decade, stacks of competing studies have attempted to parse whether the quality of care at for-profit centers is equal to that at nonprofit centers, with no clear-cut answer.
The expanding grip of DaVita and Fresenius may make such debates moot. Though the U.S. has more dialysis clinics than ever, patients don’t necessarily have more choice. “It’s Coke and Pepsi,” said Joseph Atkins, who has been in the industry for 37 years as a technician, nurse, clinic owner, and consultant. “And in some places, it can be Coke or Pepsi.”
“I Don’t Have Nowhere Else to Go”
Even as government policies have encouraged the spread of corporate dialysis, they have largely denied consumers the chance to use market power to push for better care.